Saturday 31 January 2015

Moving Up without Trading Up and Making Money in a Down Market

You don't need to trade up in order to move up.  Over the years I've dealt with many clients who have wanted to move for various reasons.  The two most common reasons that I hear for moving are: wanting to own instead of continuing to rent or the desire for more/less space.  The second thought that I find many homeowners planning a move have is, "How much will I get for my house when I sell it?"  Here I want to discuss why this might not be the best question to ask.  To understand why this isn't the best question, one must consider the “whys” and the “where” for the anticipated move.

 "What are your motivations for making the move...?"

 As with any significant life decision, one should step back and carefully examine why the decision must be made.  What are your motivations for making the move in the first place?  If you are moving towards home ownership and you currently rent then there isn't much else to consider with regards to trading up.  Although your budget may require you to downsize spatially, the desire for home ownership is a great reason to move because any short-term trade-offs will work out in your favour in the long run.
 If you are moving because you would like to upsize or downsize from your currently owned property then there are some things that you should consider.  The one consideration that I'd like to bring up here has to do with your future and wealth creation, especially if you are thinking of selling your house to move when the market is down and are concerned that you may get less for your home.  Now that you have a house that you've invested a bit of time and money, you should be able to reduce your carrying costs so that a monthly rent payment could cover them all.

 "I'd like to bring up... your future wealth creation"

For a minute, pretend that you are not a homeowner, but rather a renter looking to buy a first home: If you were a renter looking to buy, you would likely find a way to make it happen right?  But as a homeowner who has already invested significant time and money into the home while living in it, you may be surprised to discover that finding a renter who will be able to cover all of the remaining costs on that property when you move to your new one can be easier than you think.  It’s like having two houses for the price of one.
Now another consideration when trying this is where you plan to move to.  For example, being the landlord of your old home might be a hassle if your planned move is more than 30 minutes to an hour away from where you currently live (depending on your tolerance for traffic).  If you are moving not too far away caring for your previous home can be easier since you have been living in the home for a while and are familiar with the upkeep required.  This should reduce the chance of surprise maintenance issues arising.

 "It's like having two houses for the price of one."

If you rent your old house and move into a new one you will be benefiting not only from the price appreciation of two houses, but also the principle pay down on two houses as well.  Furthermore, the principle of one of the two houses will be getting paid down by someone else, while you get to benefit from the value of the house.  This technique is a relatively easy forced-saving program that has the added benefit of having someone else helping you to create wealth so that you don't have to do it all on your own.
So whether your desire is to downsize or upsize your home, if you are not planning on moving too far away you may want to consider becoming a landlord.  By opting to become a landlord you can take advantage of purchasing a new home when the market prices are down without worrying about how much you'll get for your old one. Becoming a landlord in this manner can be a great way to accelerate your goal of financial independence … maybe even allowing you to retire a few years earlier than planned!

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